U.S. Economy Posts Modest Growth into Spring

By Ilya Leybovich

April 25, 2013

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Economic activity expanded at a moderate pace in most U.S. regions through the end of winter and early spring, as strong performance in the housing market and improved auto sales helped offset declines in other key indicators, the Federal Reserve reports.

The U.S. economy continued to grow through early spring, posting steady growth in most regions and positive performance across several key indicators, according to the Federal Reserve’s latest regional business survey, which is based on interviews with thousands of business contacts nationwide. Conditions were improved by rising home prices, stronger motor vehicle sales, and increased factory activity.

The Fed’s latest Beige Book report found that five of the 12 central bank districts posted a “modest” pace of economic expansion in the past two months, while five reported “moderate” growth, resulting in a net positive for the U.S. economy as a whole. Moreover, the New York and Dallas districts posted accelerations in growth since the previous reporting period.

While there were few significant changes from the previous reporting period in January and February, the outlook was generally more positive, with every district posting some level of improvement.

The latest gains were largely driven by increases in residential and commercial real estate, which “improved markedly” in most regions, as housing prices rose and demand for home loans ticked up. Consumer spending grew modestly, although businesses in some districts firms cited higher gasoline prices, the expiration of the payroll tax cut, and severe winter weather as factors restraining sales growth.

Overall vehicle sales were also strong. Auto sales rose to 1.45 million in March, the highest level since August 2007. However, sales of used vehicles declined in some districts.

“While housing and auto sales are bright spots this year, retail sales declined in March amid tax increases and across-the-board federal budget cuts known as sequestration,” Bloomberg News reports. “Defense industry manufacturers in the San Francisco region reported ‘furloughs, layoffs, and plant closures at some production facilities,’ while the Chicago Fed said military customers in its district were cutting costs ‘in anticipation of tighter future defense budgets.’ Economic growth slowed to 0.4 percent in the fourth quarter as military spending plunged the most since the waning days of the Vietnam War four decades ago.”

The Fed described manufacturing conditions as being largely positive from late-February to early-April. Manufacturing business activity grew in the Cleveland, Atlanta, Minneapolis, Dallas and San Francisco districts, while the pace of growth slowed somewhat in Richmond and Chicago. Manufacturers in Boston cited “mixed” business conditions, while those in New York reported activity had “held steady.”

However, manufacturing in the Kansas City district continued to weaken, as declining durable goods production drove down business activity, although factory managers were “broadly optimistic” about a rebound in coming months.

“The jobs situation was unchanged or ‘somewhat’ improved with hiring firmest in manufacturing, home construction, information technology, and professional services,” Agence France-Presse notes. “While not backed by data, that picture was brighter than the monthly unemployment and job creation numbers reported on April 5, which showed a paltry 88,000 net jobs generated by the economy in March.”

The gradual but steady improvement in economic conditions into the spring season may lead to a shift in fiscal policies, as the Fed considers winding down its stimulus efforts.

“Debate has heated up among Fed policymakers about when to start curtailing the bond-buying program, which began last fall,” the Associated Press explains. “At their last meeting [on] March 19-20, a majority of Fed officials said they favored continuing the bond purchases at least through the middle of this year. But many members indicated that they want to start winding down the program before year's end, as long as hiring and the economy continued to improve.”